Why Capital Project Procurement Practices Can Make or Break a Project

January 18, 2022

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The procurement timeline is at the core of schedule-driven capital projects. A comprehensive capital project procurement plan ensures an uninterrupted supply chain of materials and equipment throughout the construction phase to maintain the scheduled timeline. The procurement of construction materials and equipment is often at the mercy of unforeseen market conditions that influence pricing and availability, resulting in prolonged lead times and impacting the overall project timeline. A robust capital project procurement process can help counter the unexpected market volatility by allocating appropriate contingencies to mitigate the risks of cost and schedule overruns

Below, we discuss some of the methods that can help  improve capital project procurement practices and how teaming up with the right contractor can help align the procurement process with the construction timeline.

Best Practices to Improve Capital Project Procurement

A robust capital project procurement plan is developed through a seamless flow of information between the engineering and construction teams and the key suppliers to ensure the availability of the project materials and equipment as per the construction schedule requirements. The following are some of the ways to improve the capital project procurement process for timely project delivery.  

Defining an Early and Detailed Scope

Developing a detailed project scope as early as possible is critical to capturing all requirements of materials and equipment and creating a capital project procurement plan during the planning phase. A well-defined project scope includes a written scope of materials and equipment requirements, along with identified deliverables and redline markup documents to determine component placement in the construction site.        

Establishing a Supplier Qualification Program

Before selecting suppliers and vendors from the Approved Manufacturers List (AML) for the capital project, their past performances should be assessed. A Supplier Qualification Program is based on multiple criteria, including the dollar value of materials committed against the dollar value received. Looking at the number of late deliveries and partial deliveries per purchase order can help with selecting the right vendors and suppliers. 

Involving Suppliers Early in the Procurement Process 

Involving suppliers early in the project is often an overlooked aspect while developing a capital project procurement plan. According to the Construction Industry Institute (CII), the early involvement of suppliers improves the ability to deliver information requirements, identify alternate solutions, and provide higher assurance of on-time delivery of materials and equipment during the construction phase. It also can improve cost certainty, streamline the Request for Proposal (RFP) process, and allow for supplier input for a more efficient review process.

Proper Execution of Advanced Work Packaging

Advanced Work Packaging (AWP) supports considerable capital project performance improvements when properly implemented. It strives to integrate a contractor’s expertise to align engineering and procurement deliverables with the construction work packages in the field and improve cost predictability in construction. With materials accounting for about 50% of the project cost, integrating supplier considerations into AWP can maximize its potential to ensure the complete delivery of materials for the package without any interruptions during installation. 

According to CII, for AWP to be effective, three prerequisites need to be accomplished during the implementation process—organizational alignment within the contractor’s team, particularly within the engineering, procurement, and construction departments; the integration of AWP procedures into project contracts; and strict adherence to AWP guidelines and processes.

For proper organizational alignment, a coordinated and integrated information flow should be fully defined throughout the project life cycle. It’s also important to thoroughly define the AWP processes and procedures in the early stages of the project to prevent any resistance among project participants during project execution. As such, including these processes in the contract allows the contractor and the project owner to ensure that all involved parties are adhering to the AWP guidelines. 

Developing a Detailed Material Storage Plan

To counter volatility in commodity prices and extended delays in lead times, contractors are often requested by project owners to procure materials and equipment early to lock in the best prices. A detailed material storage and preservation plan developed during front-end planning can help plan each material and equipment requisition based on storage and preservation requirements. 

To ensure the perfect condition of the stored materials and equipment at the start of construction, scheduled preservation activities need to be conducted and documented at regular intervals.

Logistics Planning 

Logistics planning is inherent to the scheduled delivery of anticipated materials and equipment. A capital project procurement strategy needs to consider potential construction schedule overruns caused by insufficient trucking and delays in sea transit, and logistics such as expediting and shipping should be planned accordingly. It’s also important to consider import duties and taxes as well, as these can cause procurement costs to increase.

Quality Assurance and Quality Control

Low-cost sourcing of construction materials can help beat market volatility and steep commodity prices. However, procuring construction materials below market prices also creates a risk of receiving counterfeited products. Steel, fasteners, pipes, valves, and electrical components are some of the most commonly counterfeited construction items. 

Quality assurance and quality control help maintain the supply chain integrity and address the risks of counterfeited construction products. Establishing a testing and inspection program is the key to overseeing the life cycle of materials and equipment and rejecting defective items that do not comply with inspection standards. It’s also important to ensure that all supply chain personnel are trained and educated in how to prevent and mitigate any damage from counterfeit items in the supply chain.

Streamlining Capital Project Procurement with the Right Contractor

At H+M Industrial EPC, our highly-developed procurement team takes the necessary measures to improve capital project procurement and ensure an uninterrupted supply chain to support tight construction schedules. Our in-house construction and engineering teams, along with our highly-experienced supply chain management experts, have been delivering industry-leading procurement management solutions and material services to the chemical, energy, and terminal and logistics industries for more than three decades.

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For over three decades, we have provided best-in-class capital project management services to Energy and Chemical industries through our proven EPC approach. We are dedicated to providing trust, experience, and efficiency through all stages of engineering, procurement, and construction--on budget and on time.

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